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Developing corporate bond markets in Asia

Abstract

Developing corporate bond markets in Asia, BIS Papers No 26, Part 4, February 2006 BIS Papers No 26 13 Developing corporate bond markets in Asia Jacob Gyntelberg, Guonan Ma and Eli Remolona Bank for International Settlements 1. Introduction Since the 1997 crisis, bond market development has become a high priority for policymakers in Asia. The development of local currency bond markets has been seen as a way to avoid crisis, with these markets helping to reduce potential currency and maturity mismatches in the financial system. Indeed, several Asian economies have succeeded in developing fairly active primary and secondary markets in local government bonds. Authorities across Asia have now turned their attention to local currency non-government bond markets, or what we might term “corporate bond” markets. They recognise that a robust financial system requires multiple channels of financing, in which banks and fixed income markets compete for borrowers. As the 1997 crisis itself demonstrated, short-term credit markets are prone to creditor runs, and a corporate bond market can provide the economy with an important backup form of intermediation.1 While primary markets for corporate bonds in Asia have grown significantly, the growth in some markets has been led by quasi-government issuers or issuers with some form of credit guarantee. This may have happened because investors have had little access to the kind of information that would allow them to adequately evaluate the credit risks of other potential issuers. The secondary markets have developed even less, with little trading activity to be seen. Such inactivity may stem from a lack of investor diversity, inadequate market microstructures and insufficient flows of timely information. In what follows, we first describe corporate bond markets in Asia and the Pacific in terms of their size and issuers. We then characterise the secondary markets and suggest reasons for the lack of liquidity in these m

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